What are the alternatives to equity release? (2024)

Along with thousands of other homeowners, you may be wondering whether equity release is a good idea. Homeowners over the age of 55 can look to release equity tied up in their homes, as a crucial part of funding their retirement. Data from the Equity Release Council indicates that in Q3 2023, more than £700 million of property wealth was turned into cash via equity release.

Releasing equity this way, either through a lifetime mortgage or a home reversion plan, can unlock much-needed funds with the homeowner drawing down a lump sum or regular smaller sums from the value of their home, while remaining in their property.

Safeguards are built into plans that comply with the Equity Release Council product standards, enabling thousands of homeowners every year to tap into their housing wealth without having to make monthly repayments. But is there a better alternative to equity release?

To decide if equity release is right for you, you must talk to a fully qualified equity release adviser from a recommended later-life broker to consider all the options and understand the steps involved. Releasing equity will reduce the value of your estate and may affect your entitlement to means-tested benefits; however, each individual’s circ*mstances need to be assessed to discover if it could be the right choice.

Is equity release a good idea?

Equity release is certainly not to be taken lightly and if there are other people you wish to pass assets to, equity release will mean that there’s less for them to inherit, but you should consider whether you have needs that come first. However, before you decide if equity release is a good idea for you, here are some alternatives that you might want to consider:

Alternatives to equity release

1. Downsizing

Selling up and moving to a new home, enjoying the proceeds and potentially making your home in a new community is one alternative to equity release. Many people put off the decision to downsize or leave it too late altogether, but despite the financial and emotional costs, downsizing can still be a way of releasing the funds you need to enjoy the retirement you deserve.

2. Retirement interest-only mortgage

Retirement interest-only mortgages (RIOs) are a relatively new set of products designed to help borrowers over the age of 50. They allow you to borrow against your property and only pay back the interest (and not the loan itself) each month. RIOs are very similar to standard interest-only mortgages but there are some key differences.

With most RIO mortgages, you only repay the loan when you sell your property, move into long-term care or die. But some retirement interest-only mortgages carry terms like a regular mortgage, meaning you either pay them back after a set number of years or when you reach a certain age - 90, for example. If you repay earlier than the term or sell your home, there may be early repayment charges involved.

Some retirement interest-only mortgages allow you to repay some capital as well as interest. This will cut down the size of your loan over time, meaning that more of your property can be passed onto your loved ones. Speak with an adviser if you are intending to make additional payments to understand if there are any early repayment charges involved here.

There are affordability checks to pass with these and your home may be at risk of repossession should you not make your monthly payments.

3. Extending your mortgage term

If you haven’t paid off your mortgage by the time you retire, your lender may agree to extend the term of your home loan for an extended term, perhaps 5 or 10 years.

Lenders set their own upper age limit for mortgage borrowers, so speak with your lender first to find out if it could be possible. You could also speak to a mortgage broker to help you look across the market and find out what you could be eligible for.

4. Renting out a room

If you have spare rooms and you’re willing to share your space, renting out a room could be an excellent way to boost your bank balance. There are lots of people who are looking for hassle-free rented accommodation, such as overseas students or professionals starting a job in a new area. Rising demand and a shortage of space in busy cities can make your spare room a hot commodity, so if you’re within easy commuting distance of the country’s capital or other major cities, your spare room could be all the asset you need. Always do your research by speaking to two or three reputable estate agents in your local area before taking the plunge. If you have an outstanding mortgage, you will also need to speak with your lender to see if it is allowed under the terms and conditions of the mortgage.

5. Remortgage to release equity

You might choose to remortgage your home instead of looking into equity release. However, you must bear in mind that remortgaging, whilst releasing cash for all manner of useful things in the short term, will only extend the life of your loan. This is not something you should do lightly. Depending on the mortgage you go for, you could actually see your monthly repayments go up. Additionally, upper age limits with some lenders might mean that this isn’t an option for your circ*mstances.

6. Use government grants and schemes

You never know what you may be eligible for unless you ask the question. If you find yourself in need of home modifications due to caring for someone, or a deteriorating health condition or disability of your own, you can request a free care needs assessment from your Local Authority adult social care team. This could result in free aids/equipment and/or a means-tested Disabled Facilities Grant for larger adaptations e.g. wet room or stairlift. Local authorities may offer subsidised loans or grants in exceptional cases. Other useful contacts include Citizens Advice, Age UK and the NHS.

7. Budgeting

Living within our means is one of the best and most straightforward ways of managing spend and avoiding debt. There are plenty of useful tools to be able to create a monthly budget. Evaluating incomings and essential outgoings to balance the books and avoid having to take drastic action is one of the most empowering things any of us can do. It’s worth revisiting on a regular basis, even if you do feel you have control over your finances. You can budget alone or, if you need a steering hand, with the help of a financial adviser.

Find out more today

If you’re wondering whether releasing equity or considering one of the alternatives is right for you, it is essential that you seek trustworthy, professional advice.

The Telegraph Media Group has partnered with expert later-life broker, Responsible Equity Release, to provide the guidance you need when deciding whether releasing equity is right for you. They will offer professional, impartial advice on lifetime mortgage products from lenders that are members of the Equity Release Council, guaranteeing a range of product standards.

Read more:

• How does equity release work?
• Mortgages for over 60s
• How long does equity release take?